Martha Stewart Case Study

Stockholders of any enterprise are the owners of the business. According to Sterling (1996), they are individuals or groups of individuals who through investing their money in a firm have enabled the firm not only to be in existence but to grow.’ Some stockholders are ordinary known as capitalists. This are people who having invested capital in a firm, live upon the capital’s return. ‘They have hired out their money to affirm and are paid by the enterprise that capital wage,’ (Jackson 2004)

Bettering relationships between the stockholders of a firm and its management is a problem which deserves more public attention than many other public relations problems. ‘Of all the publics that the management should show devoted interest in, stockholders have been the most solely neglected,’ (Solomon 1983) Even though some stockholder litigations may be inspired by professional hecklers and trouble makers, not without cause do stockholders bring lawsuits against managements to demand more adequate accounts, and sometimes more truthful accounts of management’s stewardship or to bring about changes in management personnel or policies.

Martha Stewart is the founder of Martha Stewart Living, an empire now listed on the New York Stock Exchange as Martha Stewart Omnimedia. This empire at its height consisted of television shows, three magazines, a newspaper column, a radio station and 34 books. Over five thousand of her products were sold at a range of sources including her web site,, as well as Kmart and other specialty stores. Kmart has had its own problems as any other stockholder.

Things seemed very sunny for Martha Stewart until some years ago. A friend of hers, Dr. Sam Waksal, founder and CEO of ImClone, formed ImClone to develop and sell a cancer drug, Erbutix. Later on Dr. Waksal was informed by the Food and Drug Administration that the drug would not get approval and a lot of money had been pumped into the exercise. According to Baptist Press, ‘on June 4, 2003, a federal grand jury in New York indicted Martha Stewart on five criminal counts of securities fraud, conspiracy, and making false statements to federal agents.’ These are part of the problems that Stewart has faced as a stockholder who even led her to stepping down as the chairperson and chief executive of her company but remained on the board of directors.

Parties who influence business decisions

Stockholders as management representatives

Besides owning the business in a most peculiar and intimate way, a firm’s stockholders are representatives of the management. In the environment where they live and travel they talk of the firm, its policies and progress, and about the services or goods it offers. ‘They influence all decisions made by a firm because if anything is one contrary to them and they retaliate by dropping whatever that the company has which is theirs, then this will burden the management and the particular decision, (Solomon 1983). They must be consulted to get their hearing on particular matters and they ascend to the same.

Stockholder research

According to Laura (2004), ‘it is ironical that although stockholders of a company own the business, many of them never put into appearance.’ In view of that, if a public relations personnel is to ascertain that the stockholders know about the business and how they feel about the management’s policies and methods, he may find it possible to apply them as public. The same methods he will put into place into determining the publics’ attitudes towards a firm and its management, namely, the techniques of opinion research. This has done by major companies for example periodical polls on stockholders’ opinion on matters such as the company’s’ labour policy, its advertising, its packaging, its merchandising methods, and salaries and bonuses paid to its executives, (Solomon 1983)

As a result of the polls the management will learn about some interesting facts about attitude of its stockholders. For example while some of the stockholders may be willing to serve as advisers on matters of general of general corporate policy and procedure, few of them may be inclined to take an active hand in merchandising the company’s products. These are the category that will go as far as buying the good or product for themselves and recommending to others for the same. However some of them are not involved in any way even introducing the product to their friends considering the number of people that they meet daily on grounds that there are people employed to do that job. This is what helped Stewart the most when her business was doing well without any blackmailing.

On the other side of the coin this was faced by Stewart that she incorporated some stockholders who were less concerned with the business they were venturing into. They never even wanted to be associated with their stock but were expecting a profit at the end of each financial period.

Stockholders are partners

If stockholders are treated with integrity, they will always come up with suggestions and ideas that are pregnant, sound, and workable on how to manage firms. This is because in their daily activities they meet with their competitors and people engaging in different businesses as they are. In the course of exchanging and knowing how they are fairing they happen to learn from each other. This helps tremendously in the direction of improving and maintaining wholesome stockholder-relations to ask for advice from stockholders in order to make them feel that they are infact partners in the business.

To develop that relationship the public relations personnel may find it to the advantage of the company to even take further measures. ‘For example the personnel may realize that the stockholders annual meeting is an inadequate means of contact between the management and the ownership, and consequently arrange for informal meetings interspersed in between, (Laura 2004). There are issues which may not wait for a year to be discussed therefore the personnel should make sure that the parties meet regularly to deliberate on issues that affect the organization.

In this sense the public relations personnel are very important people in any organization because they will arrange for social intercourse between these people. The perspective they use here is allowing the stakeholders look like partners who are very important in the organizations matters.


The annual financial report

According to Jackson (2004), ‘the traditional medium of contact between the management and its stockholders is the annual financial report.’ As Howard of general mills has described it, the annual report is “the hard core upon which all other efforts must be made.” In brief the annual report is the management’s account of what it has done with the stockholders money. This is the time that the management put the stockholders on notice.

Nowadays it is accepted by top executives that they should look at their stakeholders more as partners in the business rather than as distant relatives on the wife’s side. With this viewpoint as a basis, living management tries to make their annual report attractive to the eye, interesting and easy to read, and comprehensive in a full and complete disclosure of all pertinent information. In other words they recognize that their annual report which is sent not only to their stockholders but also used for solicitation purposes and distribution to the customers, the press, suppliers, and learning institutions; is one of the best public-relation vehicles.

The annual report is not only the way in which the management meets the stakeholders but there are other publications. In many firms we have newsletters and magazines released after a particular period of time frame, covering a wide range of subjects. Some of the newsletters are so well prepared and authoritative that they are widely quoted, and serve to show the sponsors’ knowledge of business extends. When being launched we may have representatives of the stockholders present and they shall be asked for a quote towards the same hence a meeting point between the management and stockholders. Publications of this type also create prestige which is particularly valuable to an organization in developing good public relations.

Influencing the financial community

According to Sterling (1996), ‘the financial community is composed partly of banks, insurance companies, investment bankers, and other interests that either invest en bloc in securities, or serve as agencies through which those securities are placed in the hands of the investing public.’ The public relations personnel most practical medium in reaching the financial community is the press. Consequently, as a matter of routine, the public relations personnel sees to it that copies of his company’s annual and interim reports, accompanied by releases that interpret them, are placed in the hands of business page editors and the news editors of such publications as the Wall Street Journal and Financial World.

 A financial good-will for the future should be built through direct and indirect contacts with his companies’ security-holders and with the financial community, the public relations personnel can build for his company a backlog of financial good-will.

The stockholders of his company will come to regard the enterprise as an ably managed concern that has excellent prospects. In their respective circles they will talk favorably about the enterprise. They will understand its problems and challenges that the employees face. They will appreciate its intentions and aspirations. Confident of the soundness of its policies and methods, they will look forward to its continuing growth and development. Many of them will convert themselves from in-and-out speculators to long-term investors, with the result that the stockholder turnover will drop and the enterprise will drop and the enterprise will stand upon a firmer foundation.

For the time being, in the financial community the impression will spread that the company is a solid business with an assured future. Consequently, when and if the enterprise is in need of some funds, the impression created early on will aid materially in facilitating the required new financing.

Ethics of human resource management

This covers the ethical issues surrounding the relationship between the employer and employees and hence between the management and the stockholders. ‘Their might be cases of discrimination based on age, gender race religion, disability and sexual harassment, Solomon (1983). Issues which affect the privacy of the stakeholder through whistle blowing can also apply here. Employees should be treated with utmost respect and they have their own rights as concerns their conjugal rights.

According to he Baptist press , ‘the ousting of Boeing’s chief executive officer over an adulterous affair has brought about criticism and praise while simultaneously drawing a sharp contrast over president Clinton’s infamous affair’s outcome.’ The board of directors had called for a resignation from the CEO because he was involved in an affair with another female executive. This shows that there was a lot of discrimination in terms of sexual relations within the company.


Good packaging besides protecting the valuables that are packaged enhance personality and create a favourable impression. ‘They help the product to be singled out advantageously from other competitive products’ (Jack 1988) A package does not make the product but gives the product distinctiveness, attractiveness, identification and a desirable and invaluable interest- compelling quality.

The package must fill a sales need as well as an economic demand. To fill the sales need the manufacturer requires that the package shall be in some way identified with him. That is what motivated Stewart to use her name as her trademark on the products she produced. This increased the sales for her products when there was nothing against her. Consequently her reputation was tainted with all forms of evils and business came down. Instead of her changing the brand name to confuse some clients of her products she just maintained it even loosing more of them.

Unethical issues we can point out from the case of Stewart

Other than the obvious alleged mistake of lying to the government investigators and tampering with evidence, she fell into three traps.

First, she claimed she had a stop-loss order to sell ImClone stock when it fell below$60 per share. Hitherto no documentation of this arrangement exists, unless shown otherwise at trial. Whenever executives plan to sell stock at certain prices or at certain times of the year, such as to pay for college tuition it should be written down in a formal trading plan under SEC Rule 10b5-1.

Second the brokerage firm that works with a company to handle execution and stock trades by employees and executives cannot legally reveal what insiders are doing with their stock. Therefore executives should be explained to that should a broker tell them confidently that his client, a big wheel at x company is selling or buying his company stock before this appears in SEC filings or that his families members are trying to, then they want to avoid any dealings with that broker.

According to the government, the assistant of Stewart’s broker told her about the trading activities of Sam Waksal and his daughter just before Stewart strong-willed to sell her shares of ImClone stock.

Lastly, revealing confidential information about other clients’ trades and encouraging others to piggyback on their trades is a clear violation of NASD and brokerage firm rules. Even if Stewart is acquitted of criminal charges, she still has to explain in the SEC’s civil case why, as a former stockbroker and CEO of a public company, she traded after being told this confidential information.

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